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Home / Markets / Mark To Market /  Bhel’s plan to unlock value through
leveraging assets a shot in the dark


BHEL’S PLAN TO UNLOCK VALUE THROUGH LEVERAGING ASSETS A SHOT IN THE DARK

Premium Bhel’s mere expression of interest to invite global companies does not
offer any comfort of near-term revenue or profit ramp-up. (Bloomberg) 2 min read
. Updated: 06 May 2020, 12:54 AM IST Vatsala Kamat

 * Analysts say revenue may materialize over 12-18 months from such partnerships
 * BHEL plans to leverage its assets, including its land bank, in order to
   unlock value



Read Full Story


In a bid to put its idle assets to work, government-owned Bharat Heavy
Electricals Ltd (Bhel) has sought global partners who wish to manufacture in
India. Although the move could help leverage assets and unlock shareholder value
in the long run, it did little to excite investors.



Bhel’s mere expression of interest to invite global companies does not offer any
comfort of near-term revenue or profit ramp-up.

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“We believe it is too early to comment on how much value this could add for
BHEL, as even in the most optimistic scenario, the first revenue contribution
from such partnership will materialize only after 12-18 months," said a note by
Emkay Global Financial Services Ltd.


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Wild swings.
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For now, the company is suffering from a complete lack of investor confidence,
with India’s power generation sector in the doldrums.

With more than 80% of its revenue accruing from state utility projects, Bhel’s
performance is mired with execution challenges, delayed payments, high inventory
levels and stretched working capital for several quarters.

Its net receivables are about five times its market capitalization. This is
mirrored in volatile profit margins (see chart).

After the December quarter, some analysts estimated Bhel’s revenue and operating
profit to decline by about 4% and 10%, respectively, between FY19 and FY21.

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But even these estimates look optimistic following the covid-19 outbreak and the
subsequent lockdown. Power sector reforms, which were on the cards, are likely
to take a back seat with the government’s focus diverted to health and social
measures.

That’s not all. Order flows from both the power sector and industry are bound to
be slow for the next 12-18 months.

As a result, the Bhel stock, which was a once a star performer among capital
goods firms, is in an abyss. Its market capitalization has eroded from around
₹1.3 trillion a decade ago to a paltry ₹4,000 crore.

Against this backdrop, the company’s bid to invite overseas manufacturers rides
on the government’s Make in India initiative. It is also the only hope to crank
its idle assets.

A report by CLSA said: “At a time when the world seeks supply chain
diversification, Bhel has invited multinational corporations to set up
manufacturing bases in India on a plug-and-play model. Bhel could emerge as an
engineering research and development services provider, a contract manufacturer,
or a lessor of urban-area industrial land."

Apart from its 16 state-of-the-art manufacturing facilities, the company also
has an unutilized land bank reserve.

However, given the covid-19 pandemic and its impact across economies, it may be
a long haul before the intent results in material benefit for Bhel.

Even the little hope of unlocking shareholder value with the government
divesting its stake in the company has waned, given that equity markets are
roiled by the effects of the coronavirus


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